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3 Dividend Stocks That Pay You Better Than ExxonMobil Does

Jason Hall, John Bromels, and Daniel Miller, The Motley Fool

Rising oil prices have steadily helped improve the picture for oil behemoth ExxonMobil Corporation (NYSE: XOM) in recent months. And while the stock price has gained about 14% over the past couple of months and pushed the dividend yield back below 4%, its current yield of 3.77% is close to the highest it has been since the mid-1990s. But though the company should have little trouble maintaining the payout and will probably continue to grow it modestly in the years ahead, there are other dividend stocks with higher yields that investors should consider.

Here, three Motley Fool investors write about midstream oil and gas giant Energy Transfer Partners LP (NYSE: ETP), resurgent packaged foods company Campbell Soup Company (NYSE: CPB), and retail property owner Retail Opportunity Investments Corp. (NASDAQ: ROIC) as stocks with better dividends than ExxonMobil that deserve a closer look from investors.

But it's not a cut-and-dried "just buy 'em" story. There are different risks to each that you need to consider, as well as tax consequences for at least one, depending on whether you're looking to buy in a retirement account or not. So before you just put them on your "buy" list, keep reading for deeper insight that can help you make the right choice to get the best profits.

Two hands, with one holding a yellow dollar sign and the other a red percent sign.
Two hands, with one holding a yellow dollar sign and the other a red percent sign.

Image source: Getty Images.

A massive yield (but more risk)

John Bromels (Energy Transfer Partners): Sure, ExxonMobil's yield of 3.77% seems pretty high. That is, until you compare it to master limited partnership (MLP) Energy Transfer Partners, whose yield is nearly three times as high, at an incredible 11.6%. Hang on, though. Before you start scooping up shares, there are a couple of things you should know.

The first is that MLPs are a bit different than ordinary stocks. Because they receive special tax treatment from the government in exchange for paying out all their earnings as distributions to their unitholders, MLP ownership can cause you some headaches at tax time in the form of having to jump through some extra hoops -- mostly, filling out extra forms -- for the IRS.

Beyond the MLP tax issues, Energy Transfer Partners is also a riskier company than the massive, well-established ExxonMobil. Even though it operates more than 71,000 miles of pipelines across the U.S. and has a well-established yield plus a history of increasing it regularly, Energy Transfer Partners has a highly leveraged balance sheet compared to Exxon. While that's not unusual for an MLP, it could cause the company problems down the road.

However, in Q4 2017, it took some concrete steps to clean up its balance sheet a bit, using cash from asset sales to pay down some of its most expensive debt. In its most recent quarter, Q1 2018, it used some additional sales to knock its leverage ratio down to 4.5 times EBITDA. That may be much higher than ExxonMobil's one times EBITDA, but considering Energy Transfer Partners' leverage ratio was above six times EBITDA through most of 2016, the company has made real progress in this area.

Energy Transfer Partners' massive yield, excellent recent performance, and progress on its debt repayment make it a buy.

More than a soup company

Daniel Miller (Campbell Soup): It's been a rough 12 months for Campbell Soup investors, who have witnessed the stock price spiral 42% lower thanks to rising input costs, declining margins, and the recent surprise exit of now-former CEO Denise Morrison. However, Campbell Soup could be on the path to redemption and offers investors a 4.2% dividend yield in the meantime.

Most consumers recognize Campbell Soup for its namesake soup products, and it owns nearly 60% of the soup aisle, which is great as it strengthens the company's relationship as a valuable partner for grocery chains across America. However, it must show investors growth, which it has failed to do recently. That's where its recent acquisition comes into play.

In December 2017, Campbell Soup announced it would acquire Snyder's-Lance for $50.00 per share in an all-cash transaction. The move will provide cost synergies between the two companies and, more importantly, it will accelerate Campbell's move into faster-growing segments such as snacking and health and well-being. Prior to the acquisition, baked snacks generated 31% of Campbell's sales during full-year 2017, but with Snyder's-Lance results baked in, its snacks segment would generate 46% of net sales.

Snacking products will be key to delivering growth to its investors. The U.S. snack market is an $89 billion market and growing faster than other grocery categories, according to the company's December 18, 2017, acquisition presentation. As Campbell continues to focus on faster-growing segments, it could provide the sales growth it needs to bring investors back to the stock and reverse its decline -- and until then, it's offering investors a bigger dividend than even ExxonMobil.

A great way to profit from the truth about retail

Jason Hall (Retail Opportunity Investments Corp.): In recent years, the idea of a dying brick-and-mortar retail industry has become pervasive. And while there's some truth to it -- many large retailers are still struggling while others have failed -- the bigger picture is very different: Traditional retail is actually growing, even as e-commerce becomes a bigger part of how we shop and buy.

But the perception of a dying industry, along with rising interest rates, has created an opportunity for investors to buy Retail Opportunity Investments Corp. -- or ROIC as it is called -- for a solid value. At recent prices, its yield is over 4.2%, while it trades for 17 times trailing-12-month funds from operations. This isn't the bargain-basement valuation it traded for at the low point a few weeks back, but the stock price is still down 11% from the 52-week high.

With one of the best executive teams in the industry making capital allocation decisions and a sharp focus on outdoor shopping centers with strong grocery and pharmacy anchor tenants, ROIC is not only a higher-yield stock than ExxonMobil, but I think it's also a better business to own for long-term dividend growth.

More From The Motley Fool

Daniel Miller has no position in any of the stocks mentioned. Jason Hall owns shares of Retail Opportunity Investments. John Bromels has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Retail Opportunity Investments. The Motley Fool has a disclosure policy.